Author: Nicola Sharp
13 September 2023
3 min read
In an agreement to arbitrate, the parties will decide the governing law and the seat of the arbitration. The governing law determines which law applies to the parties’ agreement, and the seat determines where the arbitration will legally be conducted and the supervisory jurisdiction of the arbitration i.e. the national courts which have jurisdiction to supervise the conduct of the arbitration.
The governing law and the seat of the arbitration are usually aligned. Occasionally however, the governing law will be one jurisdiction (England and Wales for example) and the seat will be in another jurisdiction (Paris for example).
In that scenario, the supervision of the arbitration will be undertaken by the French courts, and the legal issues in the dispute will be determined with reference to the laws of England and Wales.
However, this separation of the seat and the governing law can give rise to complications. One possible issue that may arise is the availability of anti-suit injunctions.
An anti-suit injunction is a mechanism to restrain foreign proceedings that are brought in breach of an arbitration agreement.
For example, Party A breaches its contract with Party B. The contract includes an agreement to arbitrate pursuant to LCIA Rules, and subject to the governing law of England and Wales. The seat of arbitration is Hong Kong.
Despite this, Party B begins court proceedings in Germany. Party A may choose to seek an anti-suit injunction to halt the proceedings in Germany and revert to arbitration, as agreed in the contract.
The English court’s usual position is that as long as the application is made promptly and there are no exceptional circumstances, an anti-suit injunction will be granted as a matter of course (Aggeliki Charis Compania Maritima SA v Pagnan SpA (The Angelic Grace)  1 Lloyd’s Rep. 87.)
However, where the seat of the arbitration is different from the jurisdiction of the governing law, then this could give rise to an “exceptional circumstance” that militates against the grant of an anti-suit injunction. A recent case in the High Court had to consider exactly this scenario. The case is SQD v QYP  EWHC 2145 (Comm).
In SQD v QYP the governing law for the ICC arbitration was England and Wales and the chosen seat was Paris. However, following an alleged breach of contract, QYP began proceedings in its own country (neither the UK nor France).
SQD sought an anti-suit injunction from the High Court of England and Wales to halt proceedings brought by QYP and to revert to the ICC arbitration.
Mr Justice Bright heard the application and explained that in principle, if this case involved an arbitration with its seat within the jurisdiction, he would “very likely” grant an anti-suit injunction.
However, the seat of arbitration in this case is in Paris. The main question was why the application had been made to the English High Court and not the French courts.
One of the authorities cited in the judgment explains that “the natural court for granting of interim injunctive relief must be the court of the country of the seat of arbitration” (Econet Wireless Ltd v Vee Networks Ltd  EWHC 1568 (Comm))
However, in the course of examining the position in France, it emerged that French law has a “philosophical objection” to anti-suit injunctions. It appeared that it would not be possible for SQD to obtain an interim anti-suit injunction from the court in France, because anti-suit injunctions are simply not available in France.
It is a deliberate choice of the French legal system to object to anti-suit injunctions, which they consider “contradict the fundamental principle of freedom of legal action”. In fact, they may well issue an anti-anti-suit injunction which seeks to restrain an anti-suit injunction granted by a non-French court.
In light of the evidence received in relation to French law, Mr Justice Bright considered that England was not the proper forum and he should not grant the interim anti-suit injunction. Instead, the court should have deference to the approach of French law.
There is some debate about whether this decision will stand. It contradicts other first instance decisions in the Commercial Courts, although the details of those decisions are not yet published in the public domain. The decision is also subject to an expedited interlocutory appeal, which may yet reverse the outcome.
In any event, this decision highlights one of the reasons why it is important to consider the choice of an arbitral seat carefully. When choosing a seat, parties should consider the following:
Nicola is known for her fraud, civil recovery, arbitration and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.